If you are a first-time homebuyer in the Colorado Springs real estate market or a veteran homebuyer, the recent talk about reducing the mortgage interest tax deduction probably caught your ear. It definitely caught the attention of Colorado Springs real estate agents and the president of the National Association of Home Builders (NAHB).
The ability of homeowners to deduct large amounts of mortgage interest payments from their federal income taxes means buyers can afford to purchase more of a house. Buyers can move up a notch in a search for Briargate Colorado Springs homes or Flying Horse Colorado Springs homes for sale.
The federal tax code began to encourage homeownership in 1913 by allowing interest to be deducted. Studies reveal that when people own their homes, they are more likely to be involved in their communities, perform better in school, and are healthier. Crime rates are lower and welfare is less common.
On April 17, 2011, after President Obama suggested a cutback in the mortgage interest deduction to reduce the national deficit, Larry Kush, president of NAHB, wrote a stern rebuttal in the lasvegassun.com. “When government kills a deduction that’s been around as long as the mortgage interest deduction, they essentially are creating a new tax.”
A simple description of the law follows:
- A homeowner may deduct the interest on up to $1,000,000 of debt on up to two residences. The debt must be secured by the principal residence or second home.
- The owner must be personally responsible for the repaying the debt.
- A homeowner may also deduct interest paid on additional home equity debt up to $100,000.
- A home may be a house, condominium, cooperative, mobile home, houseboat, RV, or any property that provides sleeping, cooking, and toilet facilities
Let’s look at an example of the savings to the homeowner by Casey B. Mulligan, economics professor University of Chicago, at economix.blogs.nytimes.com. If a homeowner pays a third of his taxable income in federal and state personal income taxes and he makes a $3,000 monthly interest payment, his taxable income is reduced by $3,000. So the taxpayer actually ends up paying only $2,000. The deduction saves him another $1,000.
For a good number of property owners who hold $1 million home loans, the homeowner mortgage interest tax deduction saves them about $50,000 a year. The savings is worth investigation by homebuyers to find out how the mortgage interest will affect their pursuit of home ownership in America.
Contact Ann Heiring of RE/MAX Advantage, Inc. at (719) 440-1010 or Toll Free at (800) 246-8978 to learn how our acclaimed city can work hand in glove to help you achieve your lifetime real estate goals.